Idea 1Q FY 2014

7/27/2019 Idea 1Q FY 2014

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Please refer to important disclosures at the end of this report 1

(` cr) - Consl 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)

Net revenue 6,539 6,061 7.9 5,504 18.8

EBITDA 2,076 1,673 24.1 1,436 44.6

EBITDA margin (%) 31.8 27.6 415bp 26.1 567bp

PAT 463 308 50.1 234 97.6

Source: Company, Angel Research

For 1QFY2014, Idea Cellular (Idea) reported a strong set of results, beating our

as well as market expectations on all fronts. The company’s ARPM grew by 6.1%

qoq to ` 0.44, which is the strongest amongst its peers. The share of non-voice

revenues inched up to 16.0% from 15.2% in 4QFY2013 with data volume

expanding by 20.7% to 13.8bn MB (11.4bn MB in 4QFY2013). Owing to therecent sharp run-up in the stock price, we maintain our Neutral view on the stock.

Quarterly highlights: For 1QFY2014, Idea reported a consolidated revenue of

` 6,539cr, up 7.9% qoq. The mobility segment’s revenue increased strongly by

8.3% qoq to ` 6,448cr. Voice ARPM grew by 5% qoq to ` 0.365 on the back of

lower discounting and reduction in free minutes on network, initiated a few

months back. The company’s EBITDA margin increased by 415bp qoq to 31.8%.

The EBITDA margin inch up was led by strong revenue growth along with

sequentially lower subscriber acquisition costs. The PAT stood tall at ` 463cr, up

50% qoq, led by strong operational performance and lower tax rate of 36% as

against 43% in 4QFY2013.

Outlook and valuation: Most operators, including Idea, have been rationalizingpre-paid tariffs as RPM and profitability improvement remains a key focus area

across the industry. We believe industry dynamics are in favor of incumbents with

pricing power coming back to incumbents with virtual consolidation (new

operators are rationalizing operations to reduce losses as business case is

becoming unviable with increasing costs). Going forward, we believe revenue

growth would be driven on the back of volume growth, improving realization/min

and continued data growth. With RPM keeping stable going ahead, we have

factored in a 14.5 CAGR in revenues over FY2013-15E. Strict cost control and

operating leverage would drive EBITDA going forward. Idea continues to have

one of the strongest balance sheets in the sector with net debt/annualized EBITDA

of ~1.4x and net debt/equity of ~0.7x at the consolidated level. At the CMP, the

stock is currently trading at its fair value of 6.7x FY2015E EV/EBITDA and 23.0xFY2015E EPS. We maintain our Neutral rating on the stock.

Key financials (Consolidated, Indian GAAP) Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015E

Net revenue 15,503 19,541 22,458 26,717 29,443

% chg 24.6 26.0 14.9 19.0 10.2

Net profit 864 723 1,011 1,797 2,220

% chg (9.4) (16.3) 39.8 77.7 23.5

EBITDA margin (%) 24.5 26.1 26.7 30.6 29.8

EPS (`) 2.7 2.2 3.1 5.4 6.7

P/E (x) 56.9 70.7 50.6 28.5 23.0

P/BV (x) 4.2 3.9 3.5 3.2 2.8

RoE (%) 7.0 5.5 7.0 11.1 12.0

RoCE (%) 5.7 8.3 8.7 12.1 13.4

EV/Sales (x) 4.0 3.2 2.8 2.3 2.0

EV/EBITDA (x) 16.2 12.2 10.5 7.7 6.7

Source: Company, Angel Research; Note: CMP as on 5 August, 2013

NEUTRALCMP ` 155

Target Price -

Investment Period -

Stock Info

Sector

Net debt ( ` cr) 9,930

Bloomberg Code

Shareholding Pattern (%)

Promoters 45.9

MF / Banks / Indian Fls 5.3

FII / NRIs / OCBs 16.8Indian Public / Others 32.1

Abs. (%) 3m 1yr 3yr

Sensex (2.0) 11.5 5.6

Idea 15.1 91.1 118.4

Face Value ( ` )

BSE Sensex

Nifty

Reuters Code

376,550

0.5

168/72

301,329

Telecom

Avg. Daily Volume

Market Cap ( ` cr)

Beta

52 Week High / Low

10

19,182

5,685

IDEA.BO

IDEA@IN

Ankita Somani

+91 22 3935 7800 Ext: 6819

[email protected]

Idea Cellular

Performance highlights

1QFY2014 Result Update | Telecom

August 6, 2013

7/27/2019 Idea 1Q FY 2014


Idea Cellular | 1QFY2014 Result Update

August 6, 2013 2

Exhibit 1: 1QFY2014 – Financial performance (Consolidated, Indian GAAP)

(` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy) FY2013 FY2012 % chg( yoy)

Net revenue 6,539 6,061 7.9 5,504 18.8 22,458 19,541 14.9

Operating expenditure 4,462 4,388 1.7 4,068 9.7 16,453 14,449 13.9EBITDA 2,076 1,673 24.1 1,436 44.6 6,005 5,093 17.9

Dep. and amortization 1,135 909 24.9 832 36.4 3,478 2,981 16.7

EBIT 941 764 23.2 603 56.0 2,527 2,111 19.7

Interest charges 221 224 (1.5) 267 (17.2) 949 1,056 (10.1)

Other income - - - - -

PBT 720 539 33.5 336 114.2 1,577 1,055 49.4

Income tax 257 231 11.2 102 152.4 566 332 70.5

PAT 463 308 50.1 234 97.6 1,011 723 39.8

Minority interest - - - - -

Adj. PAT 463 308 50.1 234 97.6 1,011 723 39.8

EPS ( ` ) 1.4 0.9 48.8 0.7 95.9 3.1 2.2 39.8

EBITDA margin (%) 31.8 27.6 415bp 26.1 567bp 26.7 26.1 68bp

EBIT margin (%) 14.4 12.6 179bp 11.0 343bp 11.3 10.8 45bp

PAT margin (%) 7.1 5.1 199bp 4.3 282bp 4.5 3.7 80bp


Exhibit 2: 1QFY2014 – KPI data for the mobility business

1QFY14 1QFY14E Var. (%) 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)

ARPM ( ` /min) 0.44 0.42 5.0 0.41 6.1 0.41 6.1

MOU (min) 398 410 (2.9) 406 (2.0) 379 5.0 ARPU ( ` /month) 174 171 2.0 167 4.2 156 11.5

Subscriber base (mn) – EoP 125 125 0.3 122 2.8 117 6.6

EPM ( `/min) 0.14 0.12 17.1 0.12 20.9 0.11 28.5


Exhibit 3: 1QFY2014 – Actual vs Angel estimates

(` cr) Actual Estimate % Var.

Net revenue 6,539 6218 5.2

EBITDA margin (%) 31.8 26.9 285bp

PAT 463 314 47.3


Strong results

Idea’s consolidated revenue came in at ` 6,539cr, up 7.9% qoq. The mobility

segment’s revenue increased strongly by 8.3% qoq to ` 6,448cr, on the back of

6.1% qoq growth in blended ARPM to ` 0.437. Voice ARPM grew by 5% qoq to

` 0.365 on the back of lower discounting and reduction in free minutes on network,

initiated few months back. Idea reported a 2.8% qoq growth in minutes on network

to 147.3bn. The MOU during the quarter declined by 2% qoq to 398min.

Subscriber base grew by 3.4mn qoq in 1QFY2014 with end of the period (EoP)subscriber base standing at 125mn. ARPU stood at ` 174 vs ` 167 in 4QFY2013,

up 4.2% qoq.

7/27/2019 Idea 1Q FY 2014



August 6, 2013 3

Exhibit 4: Trend in MOU


The share of VAS revenues increased to 16.0% from 15.2% in 4QFY2013, driven

by robust data growth. For Idea, 1QFY2014 saw the highest data adoption by its

customers with a sequential quarter addition of 4.7mn data users, as the EoP base

of data users grew to 30.9mn, now contributing 7.2% to service revenue. The data

volume expanded by 20.7% to 13.8bn MB (11.4bn MB in 4QFY2013) but data

realized rate declined by 1.2% qoq to 33.5paise/MB in 1QFY2014 (33.9paise/MB

in 3QFY2013). The active 3G subscriber base for the company stood at 5.5mn vs

5.1mn in 4QFY2013, leading to an overall 2G+3G data revenue growth of 19%

on a sequential basis, supporting blended ARPM. 3G ARPU increased to ` 109 as

against ` 104 in 4QFY2013 while data ARPU (3G+2G) declined marginally to ` 54from ` 55 in 4QFY2013.

Exhibit 5: Trend in ARPM


3 6 4

3 6 9

3 7 9

3 7 9

3 5 9

3 8 4

4 0 6

3 9 8

(6.9)

1.4 2.7

0.0

(5.3)

7.05.7

(2.0)

(9)

(6)

(3)

0

3

6

9

300

325

350

375

400

425

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

( % )

( m i n )

MOU (min) qoq growth (%)

0.430.43

0.42

0.41 0.41 0.41 0.41

0.44

4.1

1.4

(2.5)

(2.4)

0.2(0.5)

0.2

6.1

(4)

(2)

0

2

4

6

8

0.35

0.37

0.39

0.41

0.43

0.45


( % )

( ` / m i n )

ARPM (`/min) qoq growth (%)

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August 6, 2013 4

Exhibit 6: Trend in VAS share in mobility revenue


Thus, an increase in MOU, stable ARPM and modest subscriber addition led to a

5.7% qoq increase in average revenue per user (ARPU) to ` 167. Data ARPU

increased to ` 55 from ` 52 in 3QFY2013. The monthly churn declined to 4.3%

from 6.9% in 3QFY2013, which is again coming back to comfort levels after being

volatile in the last seven quarters. Decline in monthly churn represents rationality in

promotions and discounts; lower churn level would play a significant role towards

overall ARPM improvement.

Exhibit 7: Trend in ARPU


EBITDA margin enhances

For 1QFY2014, Idea’s EBITDA margin increased by 415bp qoq to 31.8%. The

EBITDA margin inch up was led by strong revenue growth along with sequentially

lower subscriber acquisition costs. Selling and distribution cost was lower on

account of 1) further reduction in channel commission, 2) lesser subscriber gross

adds and 3) lower advertisement spend. Lower channel commissions are in-line

with the industry rates and Idea is giving similar commissions as its peers. Duringthe quarter, the revenue from established service areas (ESA) stood at ` 6,196cr

and revenue from new service areas (NSA) stood at ` 339cr. Sequential comparison

between ESA and NSA is not possible as Mumbai and Bihar have now been

13.213.7

14.314.5

15.6

14.6

15.2

16.0

11

12

13

14

15

16


( % )

VAS share (%)

1 5 5

1 5 9

1 6 0

1 5 6

1 4 8

1 5 8

1 6 7

1 7 4

(3.1)

2.6

0.6

(2.5)

(5.1)

6.8 5.7

4.2

(6)

(4)

(2)

0

2

4

6

8

140

145

150

155

160

165

170

175180


( % )

( ` / m o n t h )

ARPU (`/month) qoq growth (%)

7/27/2019 Idea 1Q FY 2014



August 6, 2013 5

included in established circles. The EBITDA margin of ESA inched up by 166bp qoq

to 31.9%; an EBITDA loss from NSA stood at ` 131cr. EBITDA contribution from

Indus stood at ` 237cr (+37% qoq). EBITDA losses from the new circles would

continue as the company indicated that in the near term EBITDA break-even in thenew circles is not anticipated.

Exhibit 8: Trend in EBITDA margin


Exhibit 9: Opex breakup


Other result highlights

Depreciation charges during the quarter increased by ~25% qoq to ` 1,135cr

because life of some fixed assets has been revised from 13 years to 10 years.

Depreciation expense increased by ~ ` 180cr because of this during the

quarter; the Management has highlighted a total impact of ~ ` 450cr in

FY2014E.

Wireless churn during the quarter increased to 5.1% from 4.3% last quarter.

Idea added 2114 2G cell-sites, taking the total count to 92,208. 3G cell sitesincreased by 341 to 17,481 as at the end of 1QFY2014.

30 31 30 31 32

(26) (27) (26)(22)

(39)

29 30 29 30

41

26 27 26 2832

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

( % )

Established service areas New service areas Indus Consolidated

17.6 17.9 18.3 17.8 16.7

24.4 25.3 25.5 23.6 23.6

10.9 10.6 10.6 11.9 11.4

5.0 5.2 4.9 4.9 4.7

16.0 14.2 14.4 14.3 11.8

26.1 26.8 26.4 27.6 31.8

0

20

40

60

80

100

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

( % )

Access charges Network costs License fee Employee cost SGA cost EBITDA margin

7/27/2019 Idea 1Q FY 2014


7/27/2019 Idea 1Q FY 2014



August 6, 2013 7

pose as a risk to cashflow and valuations. At the CMP, the stock is currently trading

at its fair value of 6.7x FY2105E EV/EBITDA and 23.0x FY2015E EPS. We maintain

our Neutral rating on the stock.

Exhibit 10: Assumptions for KPIs

FY2012 FY2013 FY2014E FY2015E % CAGR

ARPM ( ` /min) 0.42 0.41 0.44 0.44 3.8

MOU (min) 374 378 400 404 3.3

ARPU ( ` /month) 158 156 176 179 7.3

Subscriber base (mn) – EoP 112.7 121.6 134.0 144.8 9.1

Source: Company, Angel Research; Note: EoP refers to end of period.

Exhibit 11: One-year forward EV/EBITDA


Exhibit 12: Recommendation summary

Company Reco. CMP Tgt. price Upside FY2015E FY2015E FY2012-15E FY2015E FY2015E

(`) (`) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)

Bharti Airtel Neutral 337 - - 1.9 26.1 4.8 9.7 8.9

Idea Cellular Neutral 155 - - 2.0 23.0 45.3 13.4 12.0

Reliance Communication Neutral 121 - - 2.4 23.1 9.8 4.9 3.1


5,000

18,000

31,000

44,000

57,000

70,000

83,000

96,000109,000

A p r - 0 7

A

u g - 0

7

D

e c - 0

7

A p r - 0 8

A

u g - 0

8

D

e c - 0

8

A p r - 0 9

A

u g - 0

9

D

e c - 0

9

A p r - 1 0

A

u g - 1

0

D

e c - 1

0

A p r - 1 1

A

u g - 1

1

D

e c - 1

1

A p r - 1 2

A

u g - 1

2

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e c - 1

2

A p r - 1 3

A

u g - 1

3

E V ( ` c r )

EV 14x 11x 8x 5x 2x

7/27/2019 Idea 1Q FY 2014



August 6, 2013 8

Company background

Idea Cellular (Idea), a part of the Aditya Birla Group, is the third largest

telecommunication service provider in India in terms of revenue. The company

provides mobile services in all the 22 circles of the country and has 124mn

subscribers. Idea had won 3G licenses in 11 out of the 22 circles in India and is

currently providing 3G services in 20 circles (in seven circles by 3G roaming

agreements). The company also holds a 16% stake in Indus Towers, which is a JV

with Bharti Airtel, Vodafone and Idea.

Profit and loss account (Consolidated, Indian GAAP)

Y/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015E

Net sales 15,503 19,541 22,458 26,717 29,443

Network operating expenditure 4,013 4,669 5,536 6,383 7,047

% of net sales 25.9 23.9 24.7 23.9 23.9

License and WPC charges 1,773 2,323 2,475 2,964 3,230

% of net sales 11.4 11.9 11.0 11.1 11.0

Roaming and access charges 2,475 3,280 4,015 4,523 4,992

% of net sales 16.0 16.8 17.9 16.9 17.0

Other expenses 3,451 4,176 4,427 4,668 5,403

Total expenditure 11,713 14,449 16,453 18,538 20,671

% of net sales 75.5 73.9 73.3 69.4 70.2

EBITDA 3,791 5,093 6,005 8,178 8,771

% of net sales 24.5 26.1 26.7 30.6 29.8

Dep. and amortization 2,432 2,981 3,478 4,523 4,522EBIT 1,359 2,111 2,527 3,656 4,250

% of net sales 8.8 10.8 11.3 13.7 14.4

Interest expense 396 1,056 949 914 886

Other income, net - - - - -

Profit before tax 963 1,055 1,577 2,741 3,363

Provision for tax 98 332 566 945 1,143

% of PBT 10.2 31.5 35.9 34.5 34.0

PAT 864 723 1,011 1,797 2,220

Share in earnings of associate - - - - -

Minority interest - - - - -

Profit after minority interest 864 723 1,011 1,797 2,220

EPS (`) 2.7 2.2 3.1 5.4 6.7

7/27/2019 Idea 1Q FY 2014



August 6, 2013 9

Balance sheet (Consolidated, Indian GAAP)


Liabilities

Share capital 3,303 3,309 3,314 3,314 3,314Reserves and surplus 8,995 9,739 11,105 12,902 15,122

Additional paid up capital - - - - -

Stock option outstanding - - - - -

Total shareholders’ funds 12,298 13,048 14,420 16,216 18,436

Convertible preference shares 2 2 2 2 2

Total debt 10,785 11,250 12,263 11,963 11,163

Long term provisions 171 192 314 314 314

Deferred tax liabilities 310 627 1,118 1,118 1,118

Other liabilities 235 431 795 543 763

Total liabilities 23,801 25,550 28,912 30,157 31,796

Assets

Gross block - fixed assets 33,698 41,092 46,736 50,236 54,036

Accumulated depreciation 11,213 14,104 17,582 22,104 26,626

Net block 22,485 26,988 29,154 28,131 27,409

Capital WIP 3,601 680 881 1,031 1,181

Total fixed assets 26,085 27,667 30,035 29,162 28,590

Long term loans and adv. 922 2,256 3,047 4,047 5,047

Investments - - - - -

Goodwill on consolidation 6 6 6 6 6

Non compete fees - - - - -

Current assets

Inventories 66 93 73 73 73

Current investments 1,020 98 1,028 2,028 3,028

Debtors 556 823 960 1,098 1,210

Cash 458 152 143 408 914

Loans and advances 1,098 1,539 1,086 2,055 2,454

Other current assets 1 2 1 1 1

Total current assets 3,198 2,705 3,290 5,663 7,679

Less:- trade payables 3,578 3,142 2,687 3,101 3,481

Less:-current liab. 2,826 3,936 4,771 5,610 6,036

Less:-provisions 7 7 9 9 9Net current assets (3,213) (4,379) (4,176) (3,058) (1,847)

Profit and loss account - - - - -

Total assets 23,801 25,550 28,912 30,157 31,796

7/27/2019 Idea 1Q FY 2014



August 6, 2013 10

Cash flow statement (Consolidated, Indian GAAP)


Pre tax profit from operations 963 1,055 1,577 2,741 3,363

Depreciation 2,432 2,981 3,478 4,523 4,522Expenses (deferred)/written off - - - - -

Pre tax cash from operations 3,394 4,037 5,055 7,264 7,885

Other income/prior period ad - - - - -

Net cash from operations 3,394 4,037 5,055 7,264 7,885

Tax 98 332 566 945 1,143

Cash profits 3,296 3,705 4,489 6,319 6,742

(Inc)/dec in

Current assets 632 187 (594) (2,107) (1,510)

Current liabilities 2,776 673 379 1,254 805

Net trade working capital 3,409 860 (215) (853) (705)

Cashflow from operating actv. 6,705 4,564 4,273 5,466 6,036

(Inc)/dec in fixed assets (9,803) (4,563) (5,845) (3,650) (3,950)

(Inc)/dec in intangibles (922) (1,335) (791) (1,000) (1,000)

(Inc)/dec in investments 1,130 - - - -

(Inc)/dec in net deferred tax asset 96 317 491 - -

(Inc)/dec in minority interest - - - - -

(Inc)/dec in profit and loss account 504 - - - -

(Inc)/dec in other non-current assets (28) 219 488 (251) 219

Cashflow from investing actv. (9,022) (5,362) (5,657) (4,901) (4,731)

Inc/(dec) in debt 2,926 465 1,014 (300) (800)

Inc/(dec) in equity/premium (441) 27 361 (0) 0

Dividends

Cashflow from financing actv. 2,485 492 1,374 (300) (800)

Cash generated/(utilized) 168 (306) (9) 265 506

Cash at start of the year 290 458 152 143 408

Cash at end of the year 458 152 143 408 914

7/27/2019 Idea 1Q FY 2014



August 6, 2013 11

Key Ratios

Y/E March FY2011 FY2012 FY2013 FY2014E FY2015E

Valuation ratio (x)

P/E (on FDEPS) 56.9 70.7 50.6 28.5 23.0P/CEPS 15.5 13.8 11.4 8.1 7.6

P/BVPS 4.2 3.9 3.5 3.2 2.8

EV/Sales 4.0 3.2 2.8 2.3 2.0

EV/EBITDA 16.2 12.2 10.5 7.7 6.7

EV/Total assets 2.6 2.4 2.2 2.1 1.8

Per share data (`)

EPS (Fully diluted) 2.7 2.2 3.1 5.4 6.7

Cash EPS 10.0 11.2 13.6 19.1 20.4

Dividend 0.0 0.0 0.3 0.3 0.3

Book value 37.2 39.5 43.7 49.1 55.8

DuPont analysis

Tax retention ratio (PAT/PBT) 0.9 0.7 0.6 0.7 0.7

Cost of debt (PBT/EBIT) 0.7 0.5 0.6 0.7 0.8

EBIT margin (EBIT/Sales) 0.1 0.1 0.1 0.1 0.1

Asset turnover ratio (Sales/Assets) 0.7 0.8 0.8 0.9 0.9

Leverage ratio (Assets/Equity) 1.9 2.0 2.0 1.9 1.7

Operating ROE 7.0 5.5 7.0 11.1 12.0

Return ratios (%)

RoCE (pre-tax) 5.7 8.3 8.7 12.1 13.4

Angel RoIC 7.3 8.6 9.4 13.7 15.9

RoE 7.0 5.5 7.0 11.1 12.0

Turnover ratios (x)

Asset turnover (fixed assets) 0.6 0.7 0.7 0.9 1.0

Receivables days 12 13 14 15 15

Payable days 104 85 65 65 65

7/27/2019 Idea 1Q FY 2014



August 6 2013 12

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Idea Cellular

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Documents

Idea 1Q FY 2014